In investment, an annuity is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates. The payments may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time.
Annuities are simply a series of payment made by you either weekly, monthly, quarterly, annually or any other intervals specified in advance to save money with higher interest accumulated than one would get in a savings account.
The intent is to collect regularly during retirement phase. This is often recognized after 59 and half. Let’s just say 60 for simplicity. A lump some can be invested as well. In most cases the rate is slightly higher than a CD also know as Certificate of Deposit offered at you local banks. You can either collect immediately or a designated time in the future. Depending on the initial investment by you the collection of regular payments can vary. It is a common practice for many to collect at a later time in the future.
There are three different types of annuities. Fixed (fixed interest rate), Variable ( variable interest rate) and indexed (Example: S&P 500). As you may have already suspected, some have a certain levels of risk associated with and some have a safety net as a fixed baseline preventing your money from losing value below a designated point predetermined. Your professional broker will aid you with making the best decision for the criteria you have set forth before them.
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Fixed
Fixed immediate and Fixed deferred are the two options for collecting your disbursements. Unlike the immediate which is self-explanatory, the deferred will have to have a predetermined time frame associated with it.
variable
Variable annuities offer a greater return unlike the fixed however there is a greater risk associated with this form of investment. You will have a list of mutual funds to choose from if you have familiarity with the stocks or ask the help of your broker should you need assistance.
Indexed
Indexed offer some rewards but also some risks. The safety of being assured a guaranteed return is there at minimum. The key here is to watchout for some of the fees collected when trying to withdraw all your funds. Ask about any Surrender Fees associated with this account. They are often complicated conditions that can involve higher fee.
Deferred Annuity
There is also a Deferred Annuity which has two phases. There will be the accumulation phase, which is a time period when your money is growing (building wealth) and an Annuitization phase, also know as the disbursement phase.
Tax Deferred
Tax Deferred. Keep in mind while your money is growing is tax deferred, when you collect payments you will have to pay income tax. Typically, the money generated with your annuities when placed in a Roth Account usually does not get subject to income tax.
Right of Survivorship
Right of survivorship does apply to such annuities if you have selected a beneficiary. Be sure to ask your broker for maximum protection.
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